Azerbaijan is building a legal framework for venture capital funds. This is reflected in a law approved by President Ilham Aliyev, amending the Labor Code, Civil Code, and the laws "On Currency Regulation," "On Banks," "On Investment Funds," and "On the Securities Market." The text of the document was published on the official website of the President of Azerbaijan.
Under the amendments, the law "On Investment Funds" now includes definitions of venture capital fund, professional investor, accredited investor, freely reporting venture capital fund, and licensed venture capital fund. This creates various legal models for venture funds to operate under either a simplified registration regime or a licensed regime.
Additionally, the Civil Code has been updated with provisions on convertible financial instruments, convertible notes, and Simple Agreement for Future Equity (SAFE).
The law also introduces the institution of corporate agreements and rules concerning special rights of investors. Legal foundations are defined for mechanisms such as tag-along rights, drag-along rights, preemptive rights, liquidation preferences, anti-dilution provisions, protected matters, conversion rights, and various voting rights.
The law includes provisions on Employee Stock Ownership Plans (ESOP). Through this mechanism, startup and technology companies will be able to offer not only salaries to employees and management board members but also the opportunity to acquire a stake or shares in the company in the future. This is an important tool, especially for attracting highly qualified specialists and retaining them long-term. In other words, employees become directly interested in the company's success, as the value of the stake or shares they may receive can increase as the company grows.
Furthermore, amendments to the laws "On Currency Regulation" and "On Banks" add provisions regulating currency and banking operations for digital nomads, innovative projects, venture capital funds, accredited investors, and digital services. These changes aim to reduce existing administrative hurdles for innovation and digital economy entities in areas such as foreign payments, investments, income repatriation, and access to banking services.